Oil Giants Invest Heavily in Exploration Near Shetlands

LONDON — BP and three other oil giants said Thursday that they would begin a new round of drilling in a remote area about 75 kilometers west of the Shetland Islands, an archipelago north of Scotland.

The partners plan to drill at least five new wells over two years at a cost of about $100 million each on a project they are calling Greater Clair. Depending on the results, another seven wells could be added, pushing the cost of what they are calling an “appraisal program” to more than $1 billion.

Trevor Garlick, BP’s regional president for the North Sea area, said that if successful, the operations could develop into another major investment. BP is shedding small fields off Britain and elsewhere in order to raise cash and free management to focus on major projects.

“The area is becoming more significant every year,” he said.

Analysts think the area west of the Shetlands is among the most promising sites in Britain.

The companies and the British government hope that development off the Shetlands can help offset the rapid fall of production in the North Sea, where nearly all of Britain’s fields are located — or even lead to an increase in Britain’s output. BP and various partners are planning to invest more than $12 billion over the next few years in the area, which is environmentally sensitive and where oil installations have to be built to withstand waves of up to 20 meters, or more than 60 feet.

What is attracting the companies are larger fields than are generally available in other waters to the east and south in the North Sea. New technology, as well as high oil prices, are making it feasible to extract oil that was previously undiscovered or economically unfeasible.

The Clair field, for instance, is a vast area 40 kilometers, or nearly 25 miles, long that holds an estimated eight billion barrels — a very large amount of oil by any standard.

“This is one of the areas in this part of the world where there are still giant fields to develop,” Mr. Garlick, BP’s North Sea president, said. “There is probably a lot yet to find.”

BP and its partners, Shell, Chevron, and ConocoPhillips, are already producing oil from one platform and are building larger ones at a cost of $7 billion to tap more oil to the northwest at a location known as Clair Ridge, which is scheduled to begin production in 2016. These two sections hold about half of the Clair field’s oil, the company says, but it thinks it will only extract about a billion barrels from the sections at this stage.

BP thinks that it will be able to extract about 25 percent of the oil from the first two phases of Clair. If it can repeat this performance in a third phase, Greater Clair, the oil recovered could be worth about $100 billion at current prices.

Now the companies have decided to research whether it is worth trying to tap into a series of geologically tricky fields that hold another four billion barrels, or about half of Clair’s oil, and create another production center, Mr. Garlick says.

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BP is also experimenting with an injection technique that cuts the salt content of the water used to maintain the pressure in underground reservoirs and, thus, may allow greater oil recovery.

Greater Clair is just one of a group of major projects in the West of Shetlands region. BP is also upgrading a field called Schiehallion at a cost of $5 billion. The French oil company Total has a gas project in the area called Laggan, while Chevron is working on a field called Rosebank that is in the most remote part of the region.

Although Britain was once a major producer, its output of both oil and gas fell by about 14 percent in 2012 compared with a year earlier, the government said Thursday. Oil output fell below the key level of one million barrels a day for the year. By comparison, oil output averaged about 2.5 million barrels per day in 2001.

A not-so-subtle reminder of Britain’s waning oil and gas power and increased dependence on imports came late last week. A burst of bitter cold combined with the brief outage of a natural gas pipeline from Belgium led to a spike in gas prices and worries about shortages.

Because of the production declines, “Britain has become more vulnerable to shocks than it used to be,” says Catherine Robinson, a senior director at the research firm IHS Cera in London.

The sharp production drop has caught the attention of the government, whose budget includes tax relief on decommissioning — the cleanup of depleted fields and installations — and other breaks to help the oil business.

“These measures will have a profound positive impact on industry activity and there are signs they are already encouraging new commercial activity across the U.K. Continental Shelf,” Oil and Gas UK, an industry group, said in a statement.

But a comeback appears to be in the works. Ms. Wexelstein, the analyst at Wood Mackenzie, says the industry is likely to invest $70 billion in Britain from 2012 to 2016 — the most, even accounting for inflation, since the 1970s.

“We are expecting the decline in liquids production to halt and gas production to rise, “ Ms. Wexelstein says.

Rather than abandon Britain, the industry appears to be shifting into a new phase. The major producers are shedding smaller depleted fields and moving north, though the central North Sea off Scotland will likely remain the key producer for a longtime.

BP has sold off about $3 billion worth of older North Sea fields in recent months, giving the company more cash to invest West of Shetlands and elsewhere.